E-cadherin plays a pivotal role in epithelial cell polarity, cell signalling and tumour suppression. However, how E-cadherin dysfunction promotes tumour progression is poorly understood. Here we show that the actin-capping protein heterodimer, which regulates actin filament polymerization, has a dual function on DE-cadherin in restricted Drosophila epithelia. Knocking down capping protein in the distal wing disc epithelium disrupts DE-cadherin and Armadillo localization at adherens junctions and upregulates DE-cadherin transcription. In turn, DE-cadherin provides an active signal, which prevents Wingless signalling and promotes JNK-mediated apoptosis. However, when cells are kept alive with the Caspase inhibitor P35, the activity of the JNK pathway and of the Yorkie oncogene trigger massive proliferation of cells that fail to stably retain associations with their neighbours. Moreover, loss of capping protein cooperates with the Ras oncogene to induce massive tissue overgrowth. Taken together, our findings argue that in some epithelia, the dual effect of capping protein loss on DE-cadherin triggers the elimination of mutant cells, preventing them from proliferating. However, the appearance of a second mutation that blocks cell death may allow for the development of some epithelial tumours.